What term do investors use to determine the cost of acquiring new customers?

The term that investors use to determine the cost of acquiring new customers is "Customer Acquisition Cost" (CAC). CAC represents the total cost a business incurs to gain a new customer, encompassing expenses like marketing, sales, and any other efforts directed at customer acquisition. Understanding CAC is crucial for investors because it helps gauge the efficiency and effectiveness of a company's marketing strategies and overall business model.

By analyzing CAC, businesses can make informed decisions to optimize their marketing efforts, allocate resources more effectively, and improve profitability. A low CAC indicates that a company can grow its customer base cost-effectively, which is a positive sign for investors looking for potential profitability and sustainability.

Other terms, while related to customer and revenue metrics, focus on different aspects. Customer Lifetime Value (CLV) measures the total revenue a company can expect from a single customer over the duration of their relationship, while Return on Investment (ROI) assesses the profitability of an investment compared to its cost. The sales funnel refers to the steps a potential customer goes through before making a purchase, providing context for where CAC fits into the customer journey but not defining acquisition costs directly.